Deribit vs Bitmex UP contracts

Deribit users received an e-mail outlining the difference between their options contracts and the Bitmex UP contracts recently released. Here is the text of their e-mail:

Last week, Bitmex introduced a new contract named UP (Upside Profit) Contract. This contract is basically an option on BTC, exactly like the options traded on Deribit.

 

The prices of Deribit options are established by buyers and sellers in the market. Anybody can participate at any time in the bidding process, provided enough margin in the user account.

 

The Bitmex UP contracts can only be bought. There is only one party that can short the contract, which is only one market maker designated by Bitmex. This market maker seems to be doing quite well, as the price at which the contracts have been issued are around 10 times higher than the contracts with the same specifications on Deribit (the only difference being that Deribit options expire a couple of hours earlier than the UP contracts on Bitmex).

 

The buyers of the UP contracts on Bitmex must have been unaware of the fact that they could have gotten an almost 10 times better deal on Deribit. We will explain this below with an example.

 

Looking at the Bitmex UP contract with expiry date 4 May 2018 and strike price of 10250, the current ask price for this contract is 0.0033 BTC. This contract would give a payout of the difference between the settlement price and the strike price whenever the price of BTC is higher than 10250 on the 4th of May. The contract size is 0.1 BTC, meaning that a trader would have to buy 10 of the contracts to get the full difference between strike price and settlement price (if settlement price is higher than 10250).

 

Looking at the 4 May 2018 contract on Deribit with strike price 10250, the current ask price is 0.0039 BTC. At first sight, the market on Deribit and Bitmex seem somewhat in line, but the contracts on Deribit are options on 1 BTC, while the contracts on Bitmex are options on 0.1 BTC.

 

This means that a trader on Bitmex would have to spend 0.0033*10=0.033 BTC to get the same exposure as buying on Deribit a single 4 May 2018 contract for 0.0039 BTC. Thus, in this case, a buyer is 8 times better off on Deribit than on Bitmex. In other words, traders could have saved almost 90% of their investments in Bitmex UP contracts by buying similar contracts on Deribit.

 

We hope the huge discrepancy between options prices on Deribit and Bitmex cannot only be explained by the fact that there is a single party who is allowed to short sell those contracts. We believe a mistake has been made as for the issuing price of the contracts. Let’s see if the UP contracts will get more reasonable prices in the coming weeks.

Toronto Rent Control Restricting Supply

As a Toronto property owner, I guess its good for me when my competitors won’t add to the supply of residential rental apartments (“smart”/current landlords are getting rich(er)), but as a Torontonian, I think rent control is hurting our city (and extending our commute times) since limiting the rent residential landlords can charge decreases the incentives for developers to add supply, thereby just making it more expensive for tenants in the long run. But if few Torontonians understand the dynamics of supply and demand, will rent control still sound appealing to voters? Probably 🙁 Rent control is making it harder for young people to own property, so keep investing in Toronto based REITs.

Allied Eyes 10-Year Bond to Fund Office Push for Toronto Tech

Allied Properties Real Estate Investment Trust is planning to spend about C$1 billion ($790 million) over the next five years to meet the frenzied demand for offices by tech workers in Canada’s biggest city.

Las Vegas Resort Fees Update March 2018

Room rates in Las Vegas are at all time highs, even though tourists can still get great value at many properties. Check out my updated post on Las Vegas Resort Fees.

Las Vegas Sands properties raise daily resort fees to $45

Las Vegas Sands Corp. has joined other Strip hotel-casino operators in raising resort fees. “As of March 6, The Venetian and The Palazzo increased our resort fee to $45,” Sands spokeswoman Alyssa Anderson said in an email.

blockHACK Barrie Blockchain Fintech Hackathon

A fintech blockchain hackathon is coming to Barrie Ontario on March 23rd/24th. Developers will be competing for $5,000 cash awarded to the best projects hacked together over the course of the event. Mentors will be available to coach the participants. This event is a great opportunity for junior developers in Barrie who want to learn about fintech blockchain applications and gain access to opportunities in the fintech blockchain sector.

blockHACK – CODE * LEARN * MEET * EAT

Whether you are an beginner or expert with an interest in Bitcoin, Ethereum or other blockchain projects our Blockchain Hackathon is a two day event you really will not want to miss.

How Does Bitfinex Funding Work?

If you have spare bitcoins kicking around, one way to use them is by lending them out to margin traders on an exchange such as Bitfinex. This post will explain how the Bitfinex funding market works, and how you can use it to earn more bitcoins (and even US dollar tether).

Bitfinex is a cryptocurrency exchange. Users can signup to Bitfinex to trade cryptocurrencies such as bitcoins, ethereum, bitcoin cash, and many others. One of the unique features of Bitfinex is their margin funding markets. For users who want to add leverage to their positions and users who want to earn interest on their bitcoins, Bitfinex offers a margin funding order book where those users can exchange margin funding with each other. So if you’re a trader with a bullish view on ETH over BTC, you can actually borrow BTC on Bitfinex and use those borrowed funds to jack up your ETHBTC position. This funding isn’t free, so users can also choose to lend those BTC and earn a daily interest rate.  The user funding market is an ingenious feature offered by Bitfinex which is one of the main reasons the exchange has attracted so much volume. Whereas a typical margin loan is made by a broker or dealer, as the exchange Bitfinex cuts out these middleman (as they remain as the middleman themselves).

What kinds of rates can lenders expect to receive? Since Bitfinex runs an open order book for funding, the rate you will receive is simply result of of supply and demand, and so the rate you will receive will fluctuate as the market dictates. Rates are quoted as percent per day. To find the simply daily annualized rate, multiply by 365 or use your own formula to find an APR. Follow this link to BFXdata where you can view historical Bitfinex funding rates. You will see that bitcoin funding mostly range from 0.01% per day and sometimes spike up to 0.60% per day.

What are the risks? Other than interest rate risk, and the risk that their bitcoins fall against your own unit of account (your home fiat currency?), the main risks that Bitfinex lenders face is the default risk of borrowers and the credit risk of Bitfinex itself. The risk that borrowers default is actually very low, in fact its so low that you will probably never have a borrow default on a loan. Why?  Because of the Bitfinex margin limits. Follow this link for a description of the margin rules. Bitfinex borrowers receive a margin call when the net value of their account equity reaches 22.5%. When the net value of their account falls below 15% of your borrowed funding value, the position will be force-liquidated.  Since Bitfinex is a very liquid exchange, and since there are so many ways to arbitrage the bitcoin price, the exchange can virtually always liquidate positions to make the lender whole.

The credit risk of Bitfinex is the main risk for lenders. Even though the risk of any individual defaulting is very low (virtually non-existent), the main risk is Bitfinex itself goes bust or gets hacked, and this is not pie in the sky, its happened before and it could happen again. I personally think the risk of Bitfinex being hacked again in a major way is low, the rate of return users can earn by funding margin loans reflects this risk.  Bitfinex funding does not earn you free money. I hope eventually clearing houses (maybe blockchain based clearinghouses?) will emerge to reduce the exchange default risk.

So, you want to earn some bitcoin interest by lending your funds out on Bitfinex? After you open an account, you deposit your bitcoins, and move them to your funding wallet. Now you can place an order to lend out your coins using similar mechanics to trading stocks and cryptos. There is an order book with bids and offers, choose your strategy and work your lending book. You can use the Bitfinex Flash Return Rate (FRR) which is kinda like the average daily rate on funding to automatically renew your loans, or you can auto renew at a fixed price, or you can manually update your loans using your fingers or the Bitfinex API.

Bitfinex also charges fees on margin funding. At the time of writing fees are 15% of the interest you earn.

If you have questions about Bitfinex lending, please post your comments below and I’ll do my best to answer specific questions.

Choice Properties offers to buy CREIT

This is a great move by Choice Properties as it provides diversification and more scale. It shows how Weston is moving towards greater diversification of their investment portfolio in general and making Choice Properties a key part of their strategy. As a holder of both Choice Properties and CREIT, I support this proposal and will choose the cash option.

Choice Properties REIT buying Canadian REIT for $3.9-billion

Choice Properties Real Estate Investment Trust has signed a deal to acquire Canadian Real Estate Investment Trust (CREIT) for $3.9-billion in cash and stock. The combination of Choice Properties, which counts Loblaw as its principal tenant and largest unitholder, and CREIT will create a company with a diversified portfolio of 752 properties.

Loblaw Companies Limited supports Choice Properties REIT’s acquisition of Canadian Real Estate Investment Trust

To facilitate Choice Properties’ financing for the transaction, Loblaw has agreed to convert all of its outstanding Class C LP units of Choice Properties Limited Partnership with a face value of $925 million (“Class C LP units”) into Class B LP units of Choice Properties Limited Partnership (“Class B LP units”) on closing.

Bank of Canada raises key rate to 1.25%

Bank of Canada raises key interest rate to 1.25% | CBC News

The Bank of Canada raised its key lending rate by a quarter percentage point to 1.25 per cent Wednesday, the third time it has moved its benchmark rate from once-record lows last summer. The bank’s rate has an impact on rates that Canadians get from retail banks for things like mortgages, savings accounts and GICs.

Bank of Canada raises interest rate to 1.25%, highest in almost a decade

The Bank of Canada had a window to raise interest rates and it opted to use it. Canada’s central bank raised its lending benchmark a quarter point to 1.25 per cent, an historically low setting that nonetheless will seem high to anyone who got used to post-crisis borrowing costs that were closer to zero.

What is Lightning Network?

The Lightning Network is a payment system being developed for bitcoin. The Lightning Network hopes to contribute to overcoming some of the bitcoin blockchain’s payment scalability “problems”/costs. The system is currently in testnet, but has been used for a few transactions, and seems to work. It would be used as an off-chain protocol similar in some ways to XCP.

Basically, the Lightning Network will be a peer to peer system for making micropayments of digital cryptocurrency through a scale-free network of bidirectional payment channels without delegating custody of funds or trust to third parties.

The Lightning Network has the potential to dramatically reduce the cost and time of bitcoin payments, which would reduce one of the major criticisms of bitcoin payments in their current form. It would shift the debate about scalability away from the blockchain itself and onto services using the bitcoin blockchain’s core verification system. I have been expecting more initiatives like the Lightning Network to emerge. I also expect more hosted services and payments processors to emerge as volume on the most popular blockchains continues to increase. I believe these developments will have the impact of driving transaction volume back to main blockchains with the largest network effects as mediums of exchange such as bitcoins, and away from many of the other alt coins that attempt to solve the payment scalability problem in other ways.